Don't ‘let fear take the wheel': 3 steps to recession-proof your finances, according to CFPs

U.S. investors are beginning to worry that a recession is on the horizon.

President Donald Trump's mercurial tariff policies threaten to roil the global economy, resulting in unrest in the stock market. The S&P 500 has fallen more than 10% from the index's February high.

And in a Sunday interview on Fox News, Trump hinted at some short-term economic choppiness. "There is a period of transition, because what we're doing is very big," he said. "We're bringing wealth back to America. That's a big thing. ... It takes a little time, but I think it should be great for us."

When asked if a recession is imminent, the President added, "I hate to predict things like that." He went on to say, "Look, we're going to have disruption, but we're OK with that."

If there is a recession, what does that "disruption" look like? Definitionally, it means that the U.S. economy would produce two consecutive quarters of negative GDP growth. More generally, it means that businesses and individuals alike will struggle financially.

A recession often coincides with a spike in layoffs, a slowdown in wage growth and a decline in the stock market — all of which can be dangerous for your finances if you don't prepare.

"It's so easy to let fear take the wheel, completely throw your plan out the window, and make rash decisions when there are perceived worries about a downturn in the stock market or forecasting a recession," says Marcus Holzberg, a certified financial planner based in Corte Madera, California.

Here's what he and other financial pros say to do instead.

1. Beef up your emergency savings

Unless you have a small business, the top threat to your finances during a recession is losing your paycheck, says Herschel Clanton, a CFP in Atlanta.

"The biggest threat in a recession is the loss of income," he says. "The most important task at hand is to make sure that the family's emergency fund holds between four and six months of expenses in a bank."

This is especially important for families with one primary earner, Clanton says. Couples who earn similar incomes can aim for three or four months.

Another way to think about it: Plan to survive on savings for as long as it could take you to find another gig in your industry.

"Be conservative in your estimate," says Holzberg. "Provide yourself with a solid safety net."

2. Keep an eye on your spending and income

While saving that much money can seem daunting, it's worth remembering that you're looking to cover the bare minimum in the case of an emergency. To that end, think about which expenses you'd strip from your budget if you were trying to get by between jobs.

These could include everything from big ticket purchases like travel expenses to recurring payments like entertainment subscriptions or gym memberships that you may or may not use.

If you're truly worried about a job loss, "consider cutting those out now until you feel more confident with your job security," Holzberg says.

No matter what you spend on, prioritize paying down any credit card debt you may have on your books, says Scott Bishop, a CFP in Houston. "Paying down high-interest debt, such as credit cards, reduces financial strain if income dips," he says.

It's also worth thinking about securing your income and even exploring new ways to make money, he says:  "Upskilling or diversifying income streams — say, through a side gig — can act as a buffer."

If you're looking to build your skills, focus on "problem-solving, project management, communication," Stefanie Fackrell, an HR consultant and former recruiter at Nvidia, recently told CNBC Make It. "I think you should always be trying to refine those and improve those, no matter where you are in your career journey."

3. 'Buckle up' in your portfolio

Economic contractions tend to create turmoil for investors. In the 11 recessions since 1953, the stock market has tended to peak eight months prior to the beginning of the recession and posted an average loss of about 30%, according to data from Kathmere Capital Management.

If you're worried about what a recession would do to your investments, take a moment to assess your holdings and how they're helping you achieve your goals.

"The way I prioritize my clients' portfolios in times when the market is declining is to stay diversified and avoid emotional investing," says Ben Loughery, an Atlanta-based CFP.

By spreading your investments across a wide variety of assets, you help mitigate the risk that a decline in any one position will cripple your portfolio. For many investors, maintaining diversification could mean pruning back positions in riskier assets, such as cryptocurrency and fast-growing tech firms, which may have become an outsize part of your portfolio in recent years.

But for many investors, the best thing to do is, well, nothing new. The fact of the matter is, a short-term downturn in the stock market is unlikely to have a material effect on your long-term plans.

For clients investing for long-term goals, such as retirement, "we encourage people to buckle their seat belts," says Clanton. In other words, stick to your plan, and continue investing at regular intervals.

"Expect volatility there, but the adage of 'time in the market is more important than timing the market' is always good to remember," he says.

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